Three of the most important City of London financial institutions are pushing to quicken the pace of diversity and inclusion in financial services and ward off the dangers of groupthink and overconfidence in decision making.
Regulators the Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA) and Bank of England are asking for views from the City on plans to improve diversity and inclusion in financial services.
Groupthink and overconfidence are often at the root of financial crises” – Sir Jon Cunliffe, Bank of England
Policy options put forward by the regulators include the use of targets for representation, measures to make senior leaders directly accountable for diversity and inclusion in their firms, linking remuneration to diversity and inclusion metrics and how the regulators approach to diversity and inclusion in non-financial misconduct.
Failures to improve social mobility in recruitment, the number of women in senior positions and the proportion of employees from ethnic minorities were cited by the regulators in a discussion paper.
For example, they drew attention to the 2021 Women in Finance Charter Annual Review that showed in 2020 there was, on average, 32% female representation in senior management, showing an increase of less than 1 percentage point year on year from 2017. The Green Park Business Leaders Index, the regulators said, showed a decline in the number of black leaders and the black pipeline to senior management for FTSE 100 companies. Fewer than 1 in 10 management roles in financial services are held by black, Asian or other minority ethnic people.
Diversity and inclusion
As for social mobility, a study of eight financial firms (including regulators) found that 89% of senior roles were held by people from higher socio-economic backgrounds, said the discussion paper.
The regulators’ accompanying discussion paper also focuses on the importance of using data and disclosure to enable firms, regulators and other stakeholders to monitor progress.
Improved governance, better risk management and decision making, a more innovative industry and products and services better suited to consumers’ needs are among the goals the regulators believe new diversity policies will secure.
For Sam Woods, deputy governor for prudential regulation and CEO of the PRA, although there had been progress in the financial industry over the past decade when it came to diversity, progress needed to be more rapid. “A lack of diversity of thought can lead to a lack of challenge to accepted views and ways of working, which risks compromising firms’ safety and soundness,” he said.
“Groupthink and overconfidence are often at the root of financial crises,” said Sir Jon Cunliffe, deputy governor for financial stability at the Bank of England. “Enabling a diversity of thought and allowing for an array of perspectives to coexist supports a resilient, safe and effective financial system.”
Quality of decision making
Nikhil Rathi, chief executive of the FCA, said he was “concerned that lack of diversity and inclusion within firms can weaken the quality of decision-making.”
To assess progress the regulators are looking to collect data from firms about their workforce, but first there will be a one-off survey later to help develop the proposals set out in the discussion paper.
The regulators have also asked for views on how any changes could be tailored to specific categories of firms to ensure it is proportionate.
The discussion paper is open until 30 September 2021 – with comments emailed to [email protected]. Opinion from a variety of sources is being sought, including from City firms, industry groups and trade bodies, consumer groups and individual consumers, policy makers, academics, think-tanks, industry experts and commentators.